Aviva 2006 Annual Report Download - page 87

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 83
Internal audit
The Group’s internal audit function advises management on
the effectiveness of the Company’s internal control systems,
the adequacy of these systems to manage business risk and
to safeguard the Group’s assets and resources. Through the
Group Audit Director, the internal audit function provides
objective assurance on risks and controls to the Committee.
The plans and level of resources of the internal audit function are
reviewed each year by the Committee, which also undertakes an
annual review of the effectiveness of the Group’s internal audit
function against guidance criteria provided by the Institute of
Chartered Accountants in England and Wales. As a result of the
restructuring of the Group’s internal audit function during 2006
and 2007, the proposed independent review of the function has
been deferred. However, during 2006 the effectiveness of the
internal audit peer review was independently evaluated by KPMG.
External auditor
Ernst & Young LLP (Ernst & Young) was appointed auditor of the
Company in 2001 having previously been the auditor of Norwich
Union plc. Following the 2005 external audit effectiveness review
the Committee concluded that the audit was fit for purpose and
recommended that a re-tender process should not be undertaken
in 2006 but that the relationship and the effectiveness of the
auditor be kept under review.The audit signing partner changed
as part of a rotation process in 2002 and in line with that
process there has been a further rotation in audit partner following
the sign-offof the statements for the 2006 financial year.
Ernst & Young audits the whole of the Group other than Delta
Lloyd (the Group’s subsidiary operating in the Netherlands,
Belgium, Luxembourg and Germany), which is audited by
PricewaterhouseCoopers LLP (PwC) and part of the RAC group
which remains audited by KPMG. To fulfil its Group reporting
responsibilities Ernst & Young reviews the work of PwC and KPMG
in accordance with standard auditing practices.
The Company has policies aimed at safeguarding and supporting
the independence and objectivity of the external auditors.
The policies regulate the appointment of former audit employees
to senior finance positions in the Group and set out the approach
to be taken by the Group when using the services of the auditor.
It distinguishes between those matters where an independent view
is required, such as audit and assurance work, and other advisory
services. In addition to statutory audits, audit and assurance work
includes reviewing statutory returns, actuarial assurance, regulatory
advice requiring auditor reporting, due diligence on acquisitions
and disposals, fraud investigations and control reviews and audit
reviews. As a general principle the auditor cannot be engaged
by the Company for any other purpose, although the policy
recognises that theremay be areas of minor significance where,
for pragmatic reasons, it may be in the Group’s interests to use
the external auditor for this work.
Annually, the Committee reviews a formal letter provided by
the external auditor confirming its independence and objectivity
within the context of applicable regulatory requirements and
professional standards.
The Group paid £9.0 million to Ernst & Young LLP for audit services
in 2006, relating to the statutory audit of the Group and Company
financial statements and the audit of Group subsidiaries and
associates pursuant to legislation (2005: £9.0 million).In addition,
the Group engaged Ernst & Young LLP in relation to certain
assurance work including verification of its Corporate Social
Responsibility Report. The fees for other services which included
advice on accounting and regulatory matters, reporting on internal
controls, corporate governance matters, and due diligence work
were £6.6 million giving a total fee to Ernst & Young LLP of
£15.6 million (2005: £13.8 million).Further details are provided
in note 11 to the accounts.
During the year, the Committee performed its annual review
of the independence, effectiveness and objectivity of the external
auditor; assessing the audit firm, the audit partner and audit
teams. The process was conducted by means of a questionnaire,
completed Group-wide by members of senior management
and members of the Group’sfinance community.The questionnaire
sought opinions on the importance of certain criteria and the
performance of the auditor against those criteria. The questionnaires
werecollated by the Group Company Secretary.Based on this
review, the Committee concluded that the audit service of
Ernst & Young LLP was fit for purpose and provided a robust overall
examination of the Group’sbusiness and the risks involved.
In line with the Combined Code requirement the Board undertook
a review of the effectiveness of all its committees during the year,
including the Audit Committee.
This report was reviewed and approved by the Board on
28 February 2007.
Russell Walls
Chairman, Audit Committee